Housing Market Past and Future, In Pictures
Looking forward:
Looking back: Historical year-over-year monthly percent change in the actual home-price figures for selected cities:
Read more here at Yahoo! Finance.Bottom Line: It's a good time to buy, and it'll get even better over the next year, but it's a bad time to sell.
16 Comments:
Currently at just a quick glance it looks like I need to sit tight on what I've got but if possible go to say, Vegas and see if I can catch a deal. Good info. Now I just need some money to take advantage.
Where do you get the idea it is time to buy? Do you not see the astronomical increase in prices that took place before now? We are at the top of a very steep price rise; that is has levelled off does not make it a good time to buy, that makes it a good time to sell.
After a bubble builds, as it has everywhere, it will collapse eventually. That is, to build a new house does not cost anywhere near what the reigning price is, so home builders are going to keep chasing profits by building as fast as they can.
Of course, this is not the case is some cities such as San Francisco, where obtaining building permits is almost impossible.
But everywhere else, look around you. If the price has gone way up compared to what it was, and there is plenty of virgin land around, then you need to sell if you can. Monthly percentage change in home prices has already slipped to zero, the next step is negative.
Anonymous,
Just by looking at the graphs, I buy stocks when the trend lines looked like that. I don't try to chase the bottom or the top. I try to buy near lows and sell near highs, but I miss sometimes.
It does not look like leveling off to me because the lines are going down and not horizontal. Maybe you see something I don't see.
The graphs are not trend lines, but the percent change month to month. So, if we are graphing the value of a single house, if the home value jumps 2% every month then the graph will be steady at 2% where-as a trend line would be as you expect, a constantly upward sloping line.
So, if in month 0 a house is worth $100k, and in month 1 the house is worth $110k, then the graph will show 10%. if in month 2 value has jumped to $121k, the graph will hold steady at 10%. If the next month, month 3, the value does not change, remaining $121k, then the graph will drop to 0%.
But the house is still worth 21% more in month 3 than it was in month 0.
So, judging from these graphs, showing a long string of positive percentage change, most houses are still priced substantially higher than they were just a few years ago. Buying now would mean buying at the top of the market.
Isn't that percent change in price?
Yes, percentage change in price. Which means the graph collapsing down to 0% means the price has merely stopped rising, not fallen.
Thanks. I see what you mean. Actually, you and Professor Perry are both right because you are using different buy strategies. If I understand correctly, he’s suggesting it’s a good time to buy because prices of houses are not going up anymore. You are suggesting holding off and waiting for prices to drop.
Who’s right? Well, it depends. Historically real estate does not decline in price, so waiting is not a good idea. However, these might not be normal times, and maybe real estate prices will drop, so it’s best to wait. I guess it just depends on where someone sees the floor price of real estate now, and predicting how it will perform in the near future. Buy, sell, or hold? That’s a good question.
One of the complications with real estate is that most people already own a house (68.4% home ownership rate currently), so most people have to sell a house to buy another house. Of course, this doesn't apply to renters, investors, or those buying a second home, so for them this might be a good time to buy, and it might even get better over the next year in many markets. However you look at it, it's certainly a buyer's market.
In all the markets you show, prices are way above where they were a few years ago. It does not cost much more to build a house today than it did a few years ago. So how can anyone justify the statement "Historically real estate does not decline in price", which is untrue. While it is true God is not making any more land, the city council is busy extending the highways out into the wilderness, making more real estate available to build on; not to mention the bulldozing of low-density housing to build high-density housing near downtown.
These activities are illegal in many cities, and if you live in one then now is always the time to buy, since prices are only limited by people's ability to pay, which tends to go up regularly.
But if you are not lucky enough to live in a city that has outlawed progress, then market stagnation is often a sign of a bubble settling, as sellers no longer expect gains but are too proud to start lowering prices. After awhile they will get tired of waiting, as homes sit unsold for months, and the drop begins.
Not to mention, a zero percent growth rate means a 2 to 3 percent price drop, since I doubt the graph takes inflation into account.
I'm not a real estate expert, but doesn't most real estate cost more today than ten years ago even after factoring in inflation? Maybe my house is not typical, but it appraised for almost twice what it did 15 years ago, and my real estate mutual fund was up 70% for 2006 and 2007. That's where my remark "Historically real estate does not decline in price" came from.
I agree these might not be normal times for real estate and short-term and long-term strategies may be different. I've reduced my mutual fund holdings in real estate considerably this year, but if and when it goes down, I will buy some back. I still think real estate has a place in a well-rounded portfolio.
Real estate can and does decline in price.
Generally speaking, the real estate cycle is much longer than the typical stock or bond market cycle.
Genesee County, MI is awash in unsold houses. This suggests many people are sitting on their house rather than sell at the lower, market price.
Anecdotally, the last time Genesee County was in this position was the early-to-mid 1980s. Remember the last time people were saying "The last person out of Michigan turn out the lights?" I've had people tell me that at that time they sat on their unsold home for 3 to 4 years, waiting to get the price they wanted.
So real estate prices drop, but many people decide to not sell at the lower price.
But just because the owner doesn't sell, doesn't mean the price hasn't dropped.
Did the price drop if you didn't sell?
I agree the market value dropped might have dropped, but how can I use that to protest my property assessment?
If I list my house for sale for $100,000 and all the offers are about $90,000 and I don’t sell my house in 2007 but I wait until 2008 and sell it for $100,000, what would I use as documentation for an argument of a $90,000 2007 market value.
Maybe I should list my house for sale at $100,000 and use a rejected purchase agreement to get my property assessment lowered, which will result in a lower property tax bill? How can you determine market value when the seller and buyer can’t agree on a purchase price?
You would have to use comparables to protest your assessed value.
Good luck though getting the local assessor board to approve that.
I've been through the legal property assessment process. It's actually an appeal process where the governmental unit's figures are accepted as fact with the burden of proof on the homeowner to show the assessment is incorrect. They often will lower it a token amount. I think that’s just so you will go away and not file an appeal to the state level.
would help if your graphs were at the same scale, makes them a little deceiving...
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